Basis when selling NUA stock

Submitted by Catherine Quirk on Thu, 2016-07-07 18:59

When my husband passed away in 1999 I was the beneficiary of his 401k which became my 401k. In 2004 I converted all of the 401k, except for the company stock, to an IRA. All of the company stock was transferred to my brokerage account. That year I received a 1099-R for the stock. In Box 1 was the total distribution, in Box 2a the taxable amount, and in Box 6 the net unrealized appreciation in employer’s securities. The amounts in Boxes 2a and 6 add up to the amount in Box 1. I paid tax on the taxable amount. My first question is, if I sell some of the stock now, what is my basis? My second question is, if my children inherit the stock and sell it, will their basis be updated to the value of the stock on the date of my death, as it would be for any other stock that I own? If not, what would their basis be? Thanks for any help.



Submitted by Alan - IRA critic on Thu, 2016-07-07 21:01

  • Your basis is determined per share. Your basis per share in these shares is the Box 2 amount divided by the number of shares distributed. The NUA per share is the Box 6 amount divided by the number of shares. If the shares have risen above their value when distributed from the plan, the additional value per share is also considered a LT gain.
  • NUA does not get a basis adjustment at your death, but additional gains after the 2004 distribution do. For example, if the cost basis is 30 per share and the NUA is 80 per share and each share is worth 150 at your death, the beneficiary’s basis is 70 per share (entire value less the NUA pre share). In other words, since the NUA per share does not get a basis adjustment, inheriting NUA shares is not as valuable to the beneficiary as inheriting normal shares.
  • Note that the cost basis and NUA per share needs to be adjusted for stock splits. If you have been reinvesting dividends, the new shares are normal shares, not NUA shares. You would have to determine the basis for the shares purchased by dividend reinvestment in the usual fashion. Better if you do NOT reinvest dividends since that makes tax reporting even more complex and concentrates more of your assets in the same issue.


Submitted by Catherine Quirk on Fri, 2016-07-08 22:43

Thanks for the clear explanation of cost basis for NUA stock.  It’s exactly the information I need.



Submitted by BARTON MASSEY on Sat, 2016-07-09 13:01

Alan– First, a very tardy “Thanks!” for your earlier expert help on my NUA questions.  Re your response here, last sentence in first bullet point above:  “If the shares. . .a LT gain.”  Please clarify–if NUA shares are sold within one year or less after LSD at a FMV above LSD FMV (basis+NUA), the additional increment of price appreciation would be taxed at ST CG rate–so LTCG tax rate for sale of NUA shares within that period would apply only to NUA component.  Price gain above LSD FMV would be LTCG only for NUA sale at least 1 yr.+1day after LSD. I realize that in case described above for 2004 LSD, this ST vs. LT is not an issue.  But would appreciate your further comment.  Bart Massey 



Submitted by Alan - IRA critic on Sat, 2016-07-09 16:26

You are correct about the ST gain for sale in the first year.. In the case of the OP I did not mention the ST gain that might have applied in the first year because as you indicated this did not apply to him.



Submitted by BARTON MASSEY on Sat, 2016-07-09 18:35

Thanks for response. Very Helpful.  Now I hope I’m clear that on any sale of NUA shares more than a year after LSD date and at a FMV that exceeds the split-adjusted LSD FMV, the resulting gain is fully entitled to LTCG tax rate, even if the NUA-share sale occurs more than a decade after LSD, and even if more than a single sale is required for complete NUA disposition, and even if owner of shares at sale is a subsequent beneficiary (ignore IRD).  Bart



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